Your retirement portfolio is probably very conservative. Here’s what to consider.

Saving and investing appropriately for retirement means balancing a mix of investments that manage your risk while providing dividends. How you distribute your investment money across bonds, stocks and other assets depends on your tolerance for risk and how well you plan for retirement.

Although you may want to lean more toward the side of caution and invest conservatively, this is not always the best option. Find out what allocation investment managers think is too conservative and how you can rebalance to ensure you have enough money in retirement.

Conservative portfolio risk

Playing it safe can backfire, thanks in part to inflation, says DeeDee Baze, CFP and managing partner at DeMar Consulting Group. She points out that “inflation never sleeps, and retirement periods are long.” “A healthy couple in their 60s can fund 25 to 30 years of living expenses. Inflation is creeping up on you at this time. When investments don’t keep up with inflation, every dollar you spend comes out of principal, increasing the risk of running out of money late in life.”

Charles Schwab suggests a greater concentration of stocks in your portfolio rather than safe investments during the early years of retirement, as they can hedge against the possibility of outliving your retirement income. However, whatever allocation works for you is not set in stone, as you can rebalance to adapt as the economy, market conditions, and financial needs change over time.

When investing for retirement, the power of compounding can play an important role in building wealth. However, if your portfolio allocation is too conservative, this may reduce the compounding effect since you are earning less in interest or capital gains. As a result, lower returns can lead to less money in retirement.

Signs that your portfolio is too conservative

Although there is no one-size-fits-all risk management strategy, you tend to reduce the risk in your retirement portfolio as you age. Whether your portfolio is very conservative or risky depends on how much you need the money and your ability to take risks.

However, you want to make sure you get enough returns. Your portfolio may be too conservative if “more than half of your assets are in cash or bonds,” Paz says. Another clue, she adds, is that your balance stays the same or decreases after accounting for annual withdrawals.

Charles Schwab suggests that a conservative portfolio is one that has 20% allocated to stocks, 50% to bonds, and 30% to cash investments, which is typically appropriate for those 80 and older.

If you’re in your 50s, U.S. Wealth Management recommends a 60% allocation to stocks and a 40% allocation to bonds. Reversing the allocation so that you have more bonds versus stocks may be too conservative for some in this age group.

For younger investors, a higher proportion of stocks in your portfolio may be appropriate, as you have more time to recover from market downturns and losses. Your portfolio may be too conservative if it consists primarily of cash, cash equivalents, and bonds.

Other options to consider

Rebalancing is usually done periodically or on an ongoing basis to improve your retirement income. There are other adjustments you can make as well.

You can downsize to a smaller living space to free up cash from your monthly budget and invest the savings to grow your portfolio. If you’re 50 or older, you can use savings to make catch-up contributions to an individual retirement account (IRA).

Baze offers some other suggestions if you’ve maintained this conservative portfolio for too long and retirement has arrived, or is on the near horizon. “Work a little longer or earn a part-time income,” she says. “Even $10,000 a year for five years working part-time is $50,000 less than what you’ll withdraw from your savings. Turn a hobby into extra money or rent out a room. Delay Social Security so your future checks are larger.”